Bookkeeping may not be the most exciting aspect of running a business, but it’s definitely one of the most crucial.
Solid recordkeeping is what helps keep things running smoothly behind the scenes. It’s often the difference between a business that’s growing steadily and one that’s constantly putting out fires.
When it’s not done well, bookkeeping can throw your cash flow out of whack, trigger penalties from the ATO, and turn tax time into a total time suck.
To help you stay on track this financial year, here are some of the most common bookkeeping mistakes we see small businesses make, along with tips on how to avoid them.
Overlooking the little expenses
Think a $10 stationery run or a $5 parking charge doesn’t matter? These small costs can quietly snowball over time. If they’re not tracked, they can throw off your reports and reduce your deductible expenses at tax time.
Make it a habit to log every expense, no matter how minor. Modern small business accounting software like Xero, MYOB or QuickBooks can automate a lot of this for you, so you never miss an expense.
Ignoring reimbursable expenses
If your team pays out of pocket for work-related expenses, such as fuel, supplies, and tools, it’s essential to have a robust system in place to track and reimburse them promptly. Otherwise, you risk confusion, missed tax deductions, or unhappy staff.
Use tools that enable employees to take photos and upload receipts on the go, and have a clear process for approvals and reimbursements. It’ll make life easier for everyone.
Getting employee classifications wrong
Accidentally calling a contractor an employee or vice versa can land you in hot water with the ATO. It’s not just about wages; super, tax and entitlements are all on the line.
Understand the difference, review each working arrangement carefully, and ensure your records accurately reflect the correct status for every worker.
Skipping your bank reconciliations
Reconciling your bank transactions against your books might seem tedious, but it’s essential. If you’re not doing it regularly, you could be missing errors or fraudulent activity.
Aim to reconcile weekly or fortnightly to stay ahead of any issues. Most cloud-based software can help automate this process.
No backup system
What happens if your computer crashes or your software fails? If you don’t have a backup of your financial records, you’re in trouble.
Use cloud storage or set up regular backups to an external drive. Remember: for tax purposes, you’re legally required to keep records for at least seven years. Losing them isn’t just inconvenient; it could also result in a fine.
Messing up GST
GST can be confusing, and mistakes here are costly. Whether it’s forgetting to charge GST or missing a lodgement, the ATO doesn’t take it lightly.
Know your obligations and use software that calculates GST automatically. Better yet, speak with a bookkeeper or BAS agent if you’re unsure.
Mixing business and personal spending
It may seem harmless to use the same account for both your groceries and business expenses, but this is a common trap that can make your bookkeeping a nightmare.
Open separate bank accounts for your business. It’s one of the simplest ways to keep things clean, especially when it’s time to prepare your BAS or tax return.
Poor cash flow management
Cash is king, and if you’re not managing it well, your business will struggle regardless of how much work you’ve got lined up.
Keep track of who owes you money and pay your bills on time. Send invoices promptly and consider offering small discounts for early payments.
Letting bookkeeping pile up
It’s easy to put off your bookkeeping when you’re busy on the tools or with clients, but that backlog adds up fast. The longer you wait, the harder it becomes to correct errors or recall what that unusual transaction was for.
Block out a regular time each week, just like any other job, and treat it as a non-negotiable commitment. Staying consistent saves you time (and headaches) in the long run.
Trying to do it all yourself
There’s no shame in admitting that bookkeeping isn’t your strong suit. In fact, attempting to DIY your books without the right knowledge or process can ultimately cost you more.
Whether it’s hiring a professional outsourced bookkeeper or utilising software that streamlines processes, investing in proper support provides peace of mind and frees you up to focus on growing your business.
Spend Less Time on the Books and More Time on the Business
Bookkeeping might not be your favourite task, but doing it right can save you time and money. Avoiding these common pitfalls can set your business up for smoother sailing this financial year.
If keeping on top of your books feels like a full-time job, we’re here to help. Whether you need assistance with day-to-day bookkeeping, BAS lodgments, or payroll compliance, contact our team today for a complimentary consultation.
